The figure given below shows the demand curves of two classes of buyers for tickets to a football match. Figure 10.4 D₁: Demand curve of group 1 D₂: Demand curve of group 2 MR₁: Marginal revenue of group 1 MR₂: Marginal revenue of group 2 MC: Marginal cost Refer to Figure 10.4.What price must be charged to both the groups to maximize profits? A)P₁ B)P₂ C)Group 1 must be charged P₁ and group 2 must be charged P₂. D)Group 1 must be charged P₂ and group 2 must be charged P₁. E)Both the groups must be charged a price that is equal to the marginal cost.

Question

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The profit maximizing price is where marginal revenue equals marginal cost. In this case, that would be where the marginal revenue of each group intersects with the marginal cost line. As shown in the graph, both groups' marginal revenue intersects the marginal cost line at the same point, which corresponds to the intersection of the two demand curves. Therefore, both groups must be charged the same price, which is the price at the intersection of their demand curves, represented by P₁ and P₂.

The Figure Given Below Shows the Demand Curves of Two